Walmart: An Analysis

1. Walmart's three major areas of external environment

1.A. The General Environment of Walmart can be summarized as follows:

a) Economic:Despite the general weakness in the world economy and the uncertain environment that prevailed, Walmart had reported sales growth of 11%, amounting to $6.4 billion. The company's associates were indeed doing the Walmart cheer in faraway places like Germany, South Korea, China and United Kingdom. In three decades, it had grown from its rural Arkansas roots to become the world's largest company, and quite possibly the most powerful retailer.

b) Socio-cultural: Walmart stores were geared toward the low-income customer segment; headquarters were reflective of the company's tendency to be tightfisted as they were housed in warehouse style buildings with minimalist decor. Frugality was a central tenet at the company, and every associate was expected to fully adopt this value in all its manifestations. It was also said that the company is homogenizing the marketplace by letting smaller towns dictate popular culture.

c) Global: Walmart worked globally under the philosophy: Different store for different folks. As it grows around the world, it is important to its success that it exchange best practices among all the countries where it operates. Walmart launched its globalization efforts with an initial foray into Mexico, then to Brazil, as well as Argentina. It then penetrated Europe with its stores in Germany and in the United Kingdom. Its Asian strategy composed of China, Korea and Japan.

d) Technological: Walmart was a leader in the use of technology to maximize operational efficiency. Very early on, the company realized the value of proactive investments in technology and deployed a private satellite network. Walmart also managed much of its own logistics through a central hub-and-spoke system of warehouses and distribution centers. It was estimated that the corporate logistics handled over million loads each year.

e) Political/Legal: It was said that politicking also made a way within Walmart as women were discriminated by not allowing them to sit in supervisory and managerial levels. There are said to be pending lawsuits waiting for Walmart's notions as the company has allegedly went against the labor laws.

f) Demographic: By 2004, Walmart was the largest employer in private industry worldwide as it counted over 1.3 million associates among its ranks. Roughly 65% of Walmart's management associates started out as hourly associates and it hired locally for most of its foreign operations.

1.B. Walmart's Industry Environment can be easily described as a retailing empire. Its buyers were tough negotiators and demanded a wide array of price and service concessions. It maybe tough to gain the trust and respect of the company but once you get in you'll enjoy privileges that will give you an edge among the other suppliers. The company was a willing teacher, often educating its suppliers on the finer points of cost control and efficiency. But the major focus of the company are its consumers, who they favor better than their suppliers. They don't allow suppliers to increase their prices because they always wanted consumers to get the same quality over time in the lowest price possible. Walmart in the U.S. Was individually responsible for selling 35% of all pet food, 24% of all toothpaste, the largest volume of jewelry, groceries,DVDs, CDs, toys, guns, diapers, sporting goods and much much more.

1.C. Walmart's Competitor Environment is somewhat favorable for them. Though some of the upstart chains such as Dollar General were gearing up to nip at their heels by claiming that customers lost inside the cavernous stores of Walmart and that they would gladly shop at Dollar General stores which, although much smaller, offered comparably low prices, Walmart still tops the list of retailers worldwide. Walmart's emerging markets that held a lot of promise were being bitterly contested by other major players such as Carrefour and Metro. Since many of these competitors had moved into the international marketplace long before Walmart, there was an experience curve handicap that Walmart had to contend with.

1.D. Main opportunities and threats

a) Opportunities for Walmart are vast and wide since they're growing and is financially stable, it can still forego with its wider global expansion. Given its huge base of power that enabled them to extract significant price concessions from its suppliers, the company is a sure winner. Also, as it intensifies its promotions of its own labels and store brands that competed directly against well-establish national companies such as P&G and Kraft, everything is seem to be looking grand for Walmart in the future.

b) Major Threats however are the pending lawsuits filed by disgruntled employees who felt abused and improperly treated and compensated. There are also more experienced competitors who seem to go with each other just to see Walmart fall. Walmart must be watchful and vigilant so as to keep their place in the top of the retailing industry.

2. Walmart's internal environment

2.A. Tangible resources

• Financial Resources - Since Walmart is well-established and is financially stable, it's borrowing capacity is high, it can readily produce funds for new projects and/or endeavors.

• Organizational Resources -Walmart has got big executives as well top associates. Structure is normally in a regional basis. These regions are then divided in departmental managers who handle staff of their own.

• Physical Resources - Walmart buildings can generally be found on its roots, the rural areas. Its products for selling, shipped and delivered to them by the suppliers through their own sophisticated logistics are easily available within their locations.

• Technological Resources - Walmart employ their own logistics for their product shipping, they also have their own private satellite network for point-of-sales transmission in all their stores.

2.B. Intangible resources

• Human Resources - It was a well-known fact that Walmart advocates stringent standards of employment of fair labor practice, but this fact was clouded by its own employees' cry for abuse and discontentment. Lawsuits were filed against Walmart for unfair labor practices.

• Innovation Resources - Walmart is always full of ideas. They innovate as well as educate. It evaluated market potential based on economic and political risk, growth, potential and availability of real-estate for development; thus, they always know how to tackle every investment and every innovation that they have in mind.

• Reputational Resources - Walmart's reputation with customers is obviously good since it always maintain a "for-the-consumers" attitude. After establishing its own products, they seem to grow more popular among the masses. Their products are always of good quality, are durable and reliable, since they only partner with the best names in the industry. They also get to maintain a good name and reputation with their suppliers as they continue to uphold a good working relationship with them.

2.C. Capabilities

• Distribution - Walmart effectively use logistics management techniques; it was a veritable logistics with a level of efficiency that rivaled even dedicated trucking fleets.

• Human Resources - Walmart motivates and empower employees through free education and trainings that will enrich employees' knowledge. They also promote from within, moving low-level employees to higher positions as a way of retaining and satisfying employees.

• Management - Walmart applies effective and efficient control of inventories through information systems such as point-of-sales data collection methods

• Marketing - Walmart is not into glossy advertisements like its competitors. It limits its advertising to 12 or 13 circulars a year; circulars that reflected the same bare-bones approach that the stores has adopted. But its customer service is superb because of its courteous and respectable staff. Its merchandising is also innovative and attractive to consumers.

• Manufacturing - Walmart's production skills yield reliable results since it also manufactures its own brand of products now; its product and design quality are of high standard, yet still affordable.

• Research & Development - Knowledge about what a consumer in a certain location is of great importance to Walmart, that's why it employs sophisticated R&D from information gathering, to transformation of these information into new products and processes.

2.D. Core Competencies and Competitive advantage

• Valuable Capabilities - Walmart has the capacity to neutralize threats or exploit opportunities

• Rare Capabilities - Walmart has this inherent capability that is not possessed by many other retailing stores, it is the concept that volume and inventory-turn velocity were the defining elements of competitive advantage in the discount retail business. Along with the knowledge of this concept is Walmart's capacity to ran their stores under this concept.

2.E. Value chain analysis

• Walmart understands the parts of its own operations that create value and those that do not. It strategically do away with operations that will hamper the growth of the company as fast as it could and employ operations that will help the company sustain its growth.

2. F. Main strengths and weaknesses

• Walmart 's main strengths are its continuous use of cost-effective technology and logistics, as well as its good working relationship with its suppliers. Its weakness, however, is that they seem not ready to employ 1.3 million individuals as its pays its employees roughly $13,861 annually, which is below the federal poverty line of $14,630. This weakness is the major cause of lawsuit problems that the company will be facing in the near future.

3. Walmart's Strategy

3.A. The difference between corporate-level strategy and business-level strategy

• Corporate Level Strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. It is furthermore concerned with Reach, Competitive Contact, Managing Activities and Business Interrelationships and Management Practices. Business Level Strategy on the other hand may be a division, product line, or other profit center that can be planned independently from the other business units of the firm. At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced.

3. B. Types of business-level strategies

a) Cost Leadership

• Firm Infrastructure: With cost-effective management information systems, relatively few managerial layers in order to reduce overhead costs, and simplified planning practices to reduce planning costs

• Human Resource Management: With consistent policies to reduce turn-over costs, intense and effective training programs to improve worker efficiency and effectiveness

• Technology Development: With easy-to-use manufacturing technologies, and investments in technologies in order to reduce costs associated with a firm's manufacturing processes

• Procurement: With systems and procedures to find the lowest-cost (with acceptable quality) products to purchase as raw materials and frequent evaluation processes to monitor supplier's performance

• General: With highly efficient systems to link supplier's products with the firm's production processes, use of economies of scale to reduce production costs, construction of efficient-scale production facilities, a delivery schedule that reduces costs, selection of low-cost transportation carriers, a small, highly trained sales force, products priced as to generate significant sales volume, and an efficient and proper product installations in order to reduce the frequency and severity of recalls.

b) Differentiation
• Firm Infrastructure: With highly developed information systems to better understand customer's purchasing preferences and a company-wide emphasis on the importance of producing high-quality products.

• Human Resource Management: With compensation programs intended to encourage worker creativity and productivity, superior personnel training, and somewhat extensive use of subjective rather than objective performance measures.

• Technology Development: With strong capability in basic research and investments in technologies that will allow the firm to produce highly differential products.

• Procurement: With systems and procedures used to find the highest-quality raw materials and purchase of highest-quality replacement parts.

• General: With superior handling of incoming raw materials so as to minimize damage and improve the quality of the final product, consistent manufacturing of attractive products, rapid responses to customer's unique manufacturing specifications, accurate and responsive order-processing procedures, rapid and timely product deliveries to customers, extensive granting of credit buying arrangement for customers, extensive personal relationships with buyers and suppliers, extensive buyer training to ensure high-quality product installations, and complete field stocking of replacement parts.

c) Focused Cost Leadership

d) Focused Differentiation

e) Integrated Cost Leadership/Differentiation

3. C. Differences in the value chains of organizations pursuing cost leadership and differentiation strategies

• Cost Leadership's broad target is obviously more on the cost competitive advantage, while Differentiation strategies are more on uniqueness. One example is in the area of procurement. While Cost Leadership is more focused in systems and procedures to find the lowest-cost (with acceptable quality) products to purchase as raw materials and frequent evaluation processes to monitor supplier's performance, Differentiation Strategies employ systems and procedures to find the highest-quality raw materials and purchase of highest-quality replacement parts.

3. D. Explanation on how firms can use cost leadership and differentiation strategies to earn above-average returns in spite of the presence of strong competitive forces (refer to Fig. 1 - Porter's five forces)

4. Walmart and Diversification of Operations

4.A. Three reasons why companies diversify their operations:

1. Value-creating Diversification

• Economies of scope (related diversification)

• Sharing activities

• Transferring core competencies

• Market power (related diversification)

• Blocking competitors through multi-point competition

• Vertical integration

• Financial economies (unrelated diversification)

• Efficient internal capital allocation

2. Value-neutral Diversification

• Antitrust regulation

• Tax laws

• Low performance

• Uncertain future cash flows

• Risk reduction for firm

• Tangible resources

• Intangible resources

3. Value-reducing Diversification

• Diversifying managerial employment risk

• Increasing managerial

4.B. Creating value using a related diversification strategy

• Operational relatedness - sharing activities between businesses

• Corporate relatedness - transferring skills into businesses through corporate headquarters

4.C. Examples

• Walmart diversifies and operates in four different store formats: Walmart discount stores in original Rural format, Supercenters which are open 24 hours a day, Neighborhood Markets which target the urbane city markets and Sam's Clubs which are geared toward the small businesses that buy bulk and large families that might be attracted to buying larger quantities. It is imperative for Walmart to cater every region's differences in product preferences; thus, they work under the "Different Stores for Different Folks" philosophy.

5. Walmart and Corporate Level Strategies

5.A. Three international corporate-level strategies

• Multi-domestic
- Strategy and operating decisions are decentralized to strategic business units (SBU) in each country
- Products and services are tailored to local markets
- Business units in one country are independent of each other
- Assumes markets differ by country or regions
- Focus on competition in each market
- Prominent strategy among European firms due to broad variety of cultures and markets in Europe

• Global
- Products are standardized across national markets
- Decisions regarding business-level strategies are centralized in the home office
- Strategic business units (SBU) are assumed to be interdependent
- Emphasizes economies of scale
- Often lacks responsiveness to local markets
- Requires resource sharing and coordination across borders (hard to manage)

• Transnational
- Seeks to achieve both global efficiency and local responsiveness
- Difficult to achieve because of simultaneous requirements: Strong central control and coordination to achieve efficiency
- Decentralization to achieve local market responsiveness
- Must pursue organizational learning to achieve competitive advantage

5.B. Modes of entry for international expansion

• Exporting - High cost, low control

• Licensing - Low cost, low risk, little control, low returns

• Strategic Alliances - Shared costs, shared resources, shared risks, problems of integration (e.g., two corporate cultures)

• Acquisition - Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations

• New wholly owned subsidiary - Complex, often costly, time consuming, high risk, maximum control, potential

5.C. Examples

• Walmart effectively employed the aid of acquisitions and joint ventures on its quest to become a globally competitive retailing store. It was proven when Walmart first set foot outside the United States in 1991 when it acquired a minority interest in a joint venture with a Mexican company Cifra, a retailer of repute. In a short span of time, the company set up operations in nine countries over 1,300 stores system-wide.

• In countries where the market had become saturated, Walmart used acquisitions to gain a toehold. In markets where land were easily available, it pursued organic growth. The acquisition strategy paid off in locations such as Puerto Rico and the United Kingdom where the target firms were already adopting many of the core Walmart practices.

6. Walmart and Acquisitions

6.A. Reasons for acquisitions

• Increased Market power
• Overcoming entry barriers
• Cost of new product development and increase speed to market
• Lower risk compared to developing new products
• Increased Diversification
• Avoiding excessive competition
• Learning and developing new capabilities

6.B. Problems in achieving success

• Integration difficulties
• Inadequate evaluation of target
• Large or extra-ordinary debt
• Inability to achieve synergy
• Too much diversification
• Managers overly focused on acquisitions
• Too large

6.C. Examples

• Acquisitions indeed helped Walmart in its quest for globalization. They depended on it to increase their market power. It enabled them to gain entry to such countries like Germany wherein big questions loomed if they can penetrate its peculiar laws. Walmart acquisitions also clears off competitions for the company since it gets to acquire reputable retailing businesses that could have been a tough local competitor. Walmart also get to learn and develop new techniques in merchandising through their frequent acquisitions. One example was the adoption of the George line of fashion clothing that was developed by their acquisition Asda, a Walmart look-alike that had a sizable footprint in the United Kingdom.

• But breaking into Europe through acquisitions was quite difficult and expensive for Walmart. Walmart's rural culture did not blend well with German sensibilities and integration soon became a flash-point. The peculiarities of German law that prohibited some of the staple discounting approaches of the company, combined with the language differences and distinctive market preferences, further accentuated the problem.

7. Walmart and Strategic Alliances

7.A. Types of strategic alliances

• Joint venture
- Two or more firms create a legally independent company by sharing some of their resources and capabilities.
- An entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Erickson joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

• Equity strategic alliance
- Partners who own different percentages of equity in a separate company they have formed
- An alliance in which 2 or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage

• Non-equity strategic alliance
- Two or more firms develop a contractual relationship to share some of their unique resources and capabilities
- An alliance in which 2 or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage

7.B. Types of business-level cooperative strategies

• Vertical complementary strategic alliance
- Formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms. Outsourcing is one example of this type of alliance

• Horizontal complementary strategic alliance
- Formed when partners who agree to combine their resources and skills to create value in the same stage of the value chain
- Focus is on long-term product development and distribution opportunities.
- The partners may become competitors which requires a great deal of trust between the partners

• Competition response strategy
- Occur when firms join forces to respond to a strategic action of another competitor.
- Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions

• Uncertainty-reducing strategy
- Are used to hedge against risk and uncertainty.
- These alliances are most noticed in fast-cycle markets
- An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards.

• Competition-reducing strategy
- Created to avoid destructive or excessive competition
- Explicit collusion: when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal).
- Tacit collusion: when firms in an industry indirectly coordinate their production and pricing decisions by observing other firm's actions and responses.